Tips to secure a small business loan

Whether you're just starting your business or looking to expand, you'll need to apply for a small business loan from a bank. Generally your application will be for a term loan, overdraft or a line of credit. Regardless of which type of finance you use, there are few areas the bank will check before they lend you the money.

The bank will want documentation related to your business when you apply for a loan, so take the time and put it together. You want to prove your venture is low risk.

If you're looking for start-up capital, the bank will want to see your business plan - the goals for the business, how you plan to achieve them and how the money will assist. You will also need to put together cash flow projections for the future with the breakeven point. List any collateral you have to secure the loan. They will also want to see your personal financial and credit history. The bank will assume you'll run your business finances in a similar way to your personal ones.

For owners of an existing business, the bank will be interested in the financial state of your business. The bank will want to see income statements and balance sheets for the last three years, plus your projections in these areas too. They will also require cash flow projections, as well as business tax returns. Depending on the loan, you may need to provide your business plan. If not, you'll need to tell them how you plan on investing the money in the business.

Once you've pulled this financial info together, it's time to find a bank and apply. Here are a few helpful pointers.

  • Start with a bank with which you have a financial history. Banks are generally looking to lend to ventures which are low risk. If you have a positive history with the bank, they're more likely to back you.
  • Approach a bank that is familiar with your industry and your size of business. If there are any problems, the bank is more likely to understand, as they know how the industry works. They'll also know if you projections are possible.
  • In your application, don't exaggerate your estimations and projections. You need to be able to back any statements with facts and data. The bank will be checking the application thoroughly.
  • It's best to discuss any risks in your industry openly. It shows to the bank that you've planned for any business obstacles. They also want to know how you would deal with these problems.
  • Be prepared to try one bank after the next until you get your loan. If it's your first loan, there's a chance you may be rejected. Keep trying, though. Once you have a positive borrowing history with a bank, you'll be considered low risk.
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